Decoding Sum Insured and Sum Assured in Health Insurance Plans

When people think of insurance, the first inquiry they have is what is their coverage worth. Hence, it is obviously a major part of the health insurance buying process. This is true in not just health insurance but with all types of insurance. In any kind of insurance you buy, you will come across the terms sum insured and sum assured. They one of most fundamental parts of insurance and any buyer needs to understand them thoroughly before going ahead with a purchase. Both these concepts are something that buyers must evaluate when buying a health insurance in India. However, a first-time buyer may end up being confused by the two. In such a situation, any analysis they might make based on an inaccurate idea of sum assured and sum insured, will lead to a bad purchase. Hence, you need to understand that the actual meaning of these two terms are significantly different. More importantly, you need to understand what they mean and how they fit into your financial protection.

Sum insured

  • Firstly, you need to understand that only non-life insurance policies offer the benefit of sum insured. The umbrella term for such policies is general insurance. They include motor insurance, home insurance, health insurance, travel insurance, etc. Basically, any insurance policy that does not offer life coverage is general insurance and offers a sum insured.
  • These polices work on the principle of indemnity. Indemnity means a compensation that the insurance provider would pay for a loss, damage, or injury. This loss, damage, or injury is to a specific person or asset. These policies offer financial coverage only for a loss, damage, or injury that has happened to that particular person/asset. * Standard T&C Apply
  • For example, if you buy a health insurance policy that offers a sum insured of ₹5 lakhs, that is what your coverage is worth. Now, if you are injured or experience a medical emergency, you can use this coverage to pay your hospital bills. However, the total medical expense should be below ₹5 lakhs. In the case that the bill exceeds the limit, the extra expense would have to be covered by you. * Standard T&C Apply
  • The idea of sum insured is to act as a safety net in the case of an emergency. Hence, it is based on the financial need you are making a claim for. Hence, the only amount the insurer will spend is the amount that you need. More precisely, the amount the insurance provider sends will be equal to your loss, damage, or injury* Standard T&C Apply. Hence, you shall have no additional monetary benefit. For this reason, the coverage of different types of health insurance policies is called sum insured.

Sum assured

The word assure simply means to give some guarantee of something. Hence, life insurance policies and some general insurance policies offer sum assured. It is a pre-determined amount that the insurance provider gives to the policyholder in the case of the covered event.

For example, if you buy a life insurance policy, you are buying financial protection for your family. As per the terms of a life insurance policy, your nominee receives a fixed amount of money in the case of your death. In most case, this nominee is someone from the policyholder’s immediate family. This amount is essentially promised to your family in the case of your death. It is regardless of how much the loss or damage of an event is. The amount is set at the time of the purchase of the policy. Hence, regardless of how much money is required in the event. The amount received as sum assured will be the same.

The above distinction clears the difference between sum insured and sum assured. So, when you are buying individual plan or health insurance plans for family or any other health insurance, keep in mind these differences between the terminologies to have a clear understanding. Finally, insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, you can read sales brochure/policy wording carefully before concluding a sale.